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Grand Cathay Securities Corp. and Yuanta Core Pacific Securities Co. recently separately received licenses from the Securities and Futures Commission to act as market makers in Taiwan dollar interest-rate swaps, a move that officials believe will bolster the market. Grand Cathay and Yuanta are the first domestic securities houses to receive such licenses. "This should boost volumes by 20-30% within six months", said Samuel Wang, manager of the derivatives department at Yuanta in Taipei.

Capital-protected products structured with derivatives dominated the Asian equity market last year as investors looked for a silver lining amid slumping cash equity and interest rate markets. "The major trend for the year was capital-guaranteed notes and funds," said Alan Loh, managing director and Asia Pacific (ex-Japan) co-head of equity derivatives at Deutsche Bank in Hong Kong. Harold Kim, managing director of Asia Pacific equity derivatives at Salomon Smith Barney in Hong Kong, agreed, noting that "Markets were generally weak, nervous and volatile. These conditions hurt demand for bull-market products, however, these same conditions are good for capital-guaranteed products." James Rodríguez de Castro, managing director of global equity-linked products at Merrill Lynch in Hong Kong, attributed part of the increase in demand to local banks pitching these structures to retail clients. Merrill offered the first exchange-listed equity-linked notes in Singapore dollars earlier this year (DW, 7/29). Warrants structured on baskets of Chinese B shares were also popular in Asia last year. Credit Lyonnais in Hong Kong revived these instruments after pioneering the product four years ago (DW, 6/11).

Credit-default spreads on European telecoms moved tighter last week, lead by France Telecom, as investors put New Year's cash to work in the liquid telecom sector. Five-year protection on France Telecom tightened roughly 10 basis points to 165-175bps by Thursday in London. Other European names such as British Telecommunications and Deutsche Telekom moved in about half that amount to 87-97bps and 93-103bps, respectively. Traders said the move in the default swap market mirrored the cash market, where investors put cash to work at the start of the new year before primary issuance has materialized. "Investors get flat toward the end of the year, so now they have cash to spend and nothing to spend it on," said one default swap trader, adding, "telecoms are the most liquid: you can get in and out."

Thai Farmers Asset Management, the asset management arm of Thai Farmers Bank with over THB130 billion (USD2.9 billion) under management, is looking to pull the trigger on its first derivative contract in the next few weeks, eyeing such products as asset-swaps and credit-linked notes. "We're looking at new possibilities to enhance returns," said Yingyong Nilasena, first senior v.p. of fixed income in Bangkok. The asset manager has conducted research into derivatives products over the last year and has been discussing with regulators which instruments it is permitted to use. The fixed-income fund is not permitted to invest outright in convertibles but Thailand's Securities and Exchange Commission allows such funds to invest in the debt portion if they strip out the equity component with derivatives.

The search for yield-enhancing products dominated the Asian interest-rate markets this year and acted as a catalyst for innovation. "For liability management, we started to see interest in products such as constant-maturity swaps and overnight index swaps," said Anita Fung, director and Asia-Pacific head of fixed income and derivatives at HSBC in Hong Kong. "On the asset side the trend was toward yield enhancement products, making them callable, such as swaptions, caps and floaters," she added. Volatility was also apparent in the regional interest-rate market as rates plunged. "The massive easing in the U.S. was coupled with interim volatility, particularly in Hong Kong, Taiwan and Singapore," added Fung.

MFS Investments plans to increase its allocation to European government and corporate debt from 11% of its $2 billion portfolio to about 15%, or by some $80 million, after U.S. high-grade and high-yield paper rallies. Jim Swanson, Boston-based fixed-income strategist, says U.S. paper should rally in either February or March at which time he would sell positions and shift more assets to German, Italian, Finnish, Irish and U.K. government paper as well as European banks.

This chart, provided by Citibank/Salomon Smith Barney Inc., tracks bid-ask prices for par credit facilities that trade in the secondary market. It also tracks facility amounts, ratings, pricing and maturities.

David Kotok, portfolio manager with Cumberland Advisors in Vineland, N.J., is looking at increasing the firm's Treasury Inflation Protection Security (TIPS) allocation by 10%, or an additional $25 million, within the next few months. Kotok says he will place more emphasis on buying 30-year TIPSs, based on the view that the Treasury's decision to suspend issuance of 30-year bonds will cause long TIPS to trade with a scarcity premium within a year or so. Kotok adds that all TIPSs will rally after Wednesday's 10-year auction but that the price appreciation should be greater on the long end than on the 10-year range TIPS with a premium reaching 30 to 40 basis points.

Investors Management Group, a Des Moines, Iowa firm with $5 billion in taxable fixed-income assets under management, will rotate 4.5% of its assets, or $7.2 million, in its $160 million core fund to 7.5% Ginnie Mae pass-throughs, a move that the firm's other portfolios may replicate. Kathy Beyer, portfolio manager, says the firm has slowly been bringing its mortgage-backed allocation to a neutral position versus its benchmark, the Lehman Brothers Aggregate Index. Beyer expects the firm to be at a neutral position within the next few days. Beyer says she likes the 7.5% premium coupons because they have less extension risk than lower coupon pass-throughs, and she expects prepayments to slow as the refinancing index comes down. She likes Ginnie Mae paper over that of Fannie Mae and Freddie Mac because it is only slightly more expensive, and Fannies and Freddies sometimes have lower average loan balances and are paid off more slowly. Beyer also prefers seasoned mortgage pools, since they tend to prepay more slowly.

According to the Federal Bureau of Investigation Bank Crime Statistics sent to Loan Market Week last week, most robberies are indeed daylight affairs. The most popular time to do business is between 9:00 am and 11:00 am on Friday mornings. But the modus operandi varies, with firearms and explosives popular. The most common weapon, coming in with almost 4000 attempts, is a simple demand note.

XL Capital Assurance, the New York-based asset-backed securities guarantor, has hired Gregory King as a director in its structured investments group, in a newly created position. King will report to David Czerniecki, senior managing director of structured investment products. King says he will be responsible for structuring securitization transactions using new structures and non-traditional financial guarantee wraps. Czerniecki says he expects further growth in the structured investment department at XL, adding that his department will consider adding staff in several months. With King, the department now comprises five people.

Nextel Communications' debt has pulled up into the 91 1/2 range from its last trade of 90. The bank debt was said to be trading up last week on the heels of the bonds trending upwards. Volume was estimated between $5 and $10 million. "People are awaiting the numbers from next quarter," said a dealer, explaining the hesitation to bid up on the paper any higher. Dealers explained, while there is optimism on the credit, a tough market makes players wary of bidding up for paper until a company announces official numbers. Calls to Paul Saleh, cfo, and the company's investor relations department were not returned.